So you wanna be a bear?

If you believe in the bear case you need to be aware of 2 things 1) The market ain't gonna make it easy for you to profit on the downside 2) you risk getting brainwashed by the permabears and miserable SOBs becoming one yourself. These are people who for one reason or another want the world to collapse and are always negative. You will not make money in the long run being a miserable fuck. When the markets are crumbling it's easy to get lured into believing the doom and gloom propaganda thinking that the world is going to end.  Don't be one of these losers.

Getting back to point 1). A bear market can have rallies that last several months. The more oversold the previous decline, the longer then ensuing rally could be. It's arguable that the rebound from last February's low was a bear market rally. Anyone who pressed their bearish bets or shorted the first rally from that low got smoked and no doubt wiped out/capitulated by the time October came around.  Look at how the market traded after it crashed due to 911. Although the market was still in bear mode, it fully recovered from that crash and then some. For the ensuing 6 months after the 911 low, bears got thier nuts crushed.

The market did get quite quite oversold in December and so don't be surprised if this rally lasts longer still after perhaps a pause. As I've stated before, it's very difficult and treacherous for both bulls and bears during a bear market because the headline risk is on both sides. You got weakening fundamentals on one hand and policy responses on the other. And in the early stages of a bear market the fundamental data is not uniformly weak as there will still be some positive data coming out that gives false hope - kind of like getting summer weather in early October. Then there's of course the possibility that December was indeed the bottom and the bull market of 2009 is resuming....we will only know in hindsight. I'm still not giving the bulls the benefit of the doubt here but I'm respectful of the notion that it could have indeed been the bottom because until we start to see weakening leading indicators translate to declining overall corporate earnings, the bear case is by no means assured and should not be fully embraced.  Slower earnings growth would not cut it - there has to be an outright contraction. At the end of the day it's earnings or the lack thereof, that drives the markets. Markets will always attempt to anticipate and front run turning points in earnings trends...sometimes it does so correctly, other times it doesn't!

Given elevated put/call ratios throughout this recent rally including today, it shows that too many bears have faded the rally and are helping to fuel it as they get squeezed and stopped out.  Now that the market is ST overbought I suspect that there will be a pause coming soon and I will be watching to see how people react to it. If markets go sideways for a bit, it may lure enough people back in before springing the trap door again. AAII bull to bear ratio is now at 1.3 to 1 and so the pessimism from Joe Q investor has unwound quite a bit.  If the bull/bear ratio gets closer to 2:1, it would be more indicative of an immanent intermediate term top.

When I get conflicting signals like this I step aside. Wait for that hanging curve ball before swinging.